Reports based on the Panama Papers — a collection of leaked documents from a Panamanian law firm — suggest that the president of Ukraine attempted to use an offshore company for a pre-sale restructuring of his business. Our initial analysis suggests, though, that there is no direct evidence of major wrongdoing. The incident will, however, accelerate the public debate in Ukraine about its outdated corporate governance laws, potential conflicts of interests and political accountability among officials in the highest offices.

What happened?

On Sunday, a number of media outlets published analysis of leaked documents referred to as the “Panama Papers” that implicate multiple international leaders in using offshore companies to manage their assets. The president of Ukraine, Petro Poroshenko, is among the names listed. Unlike the president of Russia, who is alleged to be connected to a $2 billion dollar network of assets siphoned off the Russian banks, or the prime minister of Iceland, who is suggested to have concealed a major conflict of interest, the transgressions of the president of Ukraine appear to be more of a technical nature.

The papers show that Ukraine’s president created, in his own name, a BVI company, which through its subsidiaries acquired at least one of his major businesses in Ukraine, his chocolate company Roshen. Previously, the company was owned by a Ukrainian mutual fund that also controls all other assets of the president. Clearly, this is not an issue of illegal enrichment while in office.

Nevertheless, the revelation of the president’s transaction has generated substantive public discontent in Ukraine. Over the past several months, the president has been sharply criticized for a poor record of fighting corruption and slow progress of reforms. A recent New York Timeseditorial accused the president of accepting continuing corruption in exchange for the room to act in the middle of a political crisis triggered earlier this year by a loud resignation of the minister of the economy. Negotiations over the new government are expected to conclude any moment now. Against this background, the leaked documents put the president in an awkward position.

What are the accusations?

The article of the Organized Crime and Corruption Reporting network that analyzed the leaked documents states that:

Poroshenko’s action might be illegal on two counts: he started a new company while president and he did not report the company on his disclosure statements.

Indeed, under the Constitution of Ukraine, the president may not engage in any entrepreneurial activity. The president may own shares, but it is unclear whether restructuring assets is exempt. The irony here is that Poroshenko had promised to divest his assets and thus in order to keep his promise, some business activity is inevitable.

It is also true that Poroshenko did not disclose the ownership of the shares in his declaration — another alleged violation of the law. Yet, failing to disclose the assets could be defended on technical grounds: There was no actual payment for the shares and so the requirement does not apply.

The public has raised another concern, which is that perhaps the restructuring of the president’s assets was intended to decrease taxes paid in Ukraine. This specific type of restructuring is typical for businesses in Ukraine and is usually driven by (a) poor corporate governance and property rights protection in the country and (b) tax optimization. The current restructuring most likely has not led to underpayment of tax. At the same time, there may be scenarios under which the future sale of business will result in loss of tax revenues by Ukraine.

While the choice of the British Virgin Islands, Cyprus and even the Netherlands for subsidiaries can be in full compliance with Ukrainian business practices, it shows poor political judgment. Such structures are typically used to sell profitable businesses with the capital gains taxed at a minimum level and outside of the country in which the profit is generated.

In one surprising aspect, Poroshenko has deviated from business as usual in Ukraine. He chose to indicate himself as a direct shareholder of an offshore company. By contrast, the standard is for the real owners to stay behind foundations, trusts or nominee shareholders, not unlike the schemes alleged with respect to the other “rich-and-famous’’ individuals revealed in the leak. Interestingly, the Roshen group also generates significant tax revenues for Ukraine. In 2015, the chocolate business of the president was ranked 74th among top taxpayers of the country, with payments over 1.3 billion Ukrainian Hryvnia.

What are the implications?

So far, the leaked documents have not revealed any major wrongdoing by the president. The offense is essentially technical in nature. The incident comes at a time of the most severe political crisis in Ukraine after the Euromaidan. The president is vulnerable and he might be struggling to keep the situation under control. The revelations depict the president (or his business consultants) as a shrewd businessman, but the extent to which this is what the country wants out of its president remains an open question.

This incident is one of the many recent dramatic political events in Ukraine. Jointly, they make early parliamentary elections more likely. They will also likely force Ukrainians to reflect on their expectations about the leaders of the country, conflicts of interests, the separation of business and politics, and more generally about the institutions and laws they should create in the new Ukraine.